C
anada's decade-long reign as the largest foreign investor in US commercial real estate is facing a new challenge. The billions of dollars flowing from its northern neighbor into American properties could be disrupted by the escalating trade tensions between the two nations.

    The rift began when President Donald Trump threatened tariffs on Canadian goods and mused about annexing Canada, sparking outrage among Canadians and their investors. This has led to concerns that Canadian buyers might slow or postpone US real estate deals. "If you're a cross-border investor, the US has been a lower political risk jurisdiction," said Gunnar Branson, CEO of the Association of Foreign Investors in Real Estate. "Risk managers are looking and saying: We need to assess that."

    Canadian pension funds, which have been major acquirers of trophy US commercial assets, could turn elsewhere. Oxford Properties, a subsidiary of the Ontario Municipal Employees Retirement System, is a partner in Hudson Yards on Manhattan's west side. Caisse de dépôt et placement du Québec owns several prominent real estate assets, including 3 Bryant Park and a majority stake in 1211 Avenue of the Americas.

    The souring relationship has influenced investor decision-making, experts say. "Does the comments coming out of Washington impact real estate trading? Yes, it does," said Mark Rose, CEO of Avison Young. European investment funds are emerging as an alternative, with interest picking up in funds managed by Hines and other firms.

    While some investors may be shifting their focus away from the US, there are reasons to believe that global investment into US real estate might remain robust even in a world where the US faces economic backlash and retaliation for its new policies. "The US still has the best growth," said Dirk Aulabaugh, global head of advisory services at Green Street. "We still have the most transparency. We still have the most stable government."

    However, the trade tensions could still have a significant impact on investment decisions. "They're not happy about it," said Sam Tenenbaum, head of multifamily insights at Cushman & Wakefield, referring to a Canadian investor considering a US acquisition. "But I wouldn't characterize it as affecting their investment decisions."